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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 26, 2004
---------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------------
Commission file number 000-23314
TRACTOR SUPPLY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3139732
------------------------------ ----------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification No.)
Incorporation or Organization)
200 POWELL PLACE, BRENTWOOD, TENNESSEE 37027
- ----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
320 PLUS PARK BOULEVARD, NASHVILLE, TENNESSEE 37217
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
CLASS OUTSTANDING AT JULY 24, 2004
- -------------------------------------- -----------------------------
Common Stock, $.008 par value 38,257,252
TRACTOR SUPPLY COMPANY
INDEX
PAGE NO.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 26, 2004 and December 27, 2003................................................3
Consolidated Statements of Income -
For the Fiscal Three and Six Months Ended
June 26, 2004 and June 28, 2003....................................................4
Consolidated Statements of Cash Flows -
For the Fiscal Six Months Ended
June 26, 2004 and June 28, 2003....................................................5
Notes to Unaudited Consolidated Financial Statements...............................6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................13-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........................18
Item 4. Controls and Procedures..............................................................18
Part II. Other Information:
Item 1. Legal Proceedings....................................................................19
Item 4. Submission of Matters to a Vote of Security Holders..................................19
Item 6. Exhibits and Reports on Form 8-K.....................................................20
Signature ....................................................................................20
Page 2 of 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 26, DECEMBER 27,
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 66,421 $ 19,980
Inventories ................................................................ 407,050 324,518
Prepaid expenses and other current assets .................................. 23,507 27,725
Assets held for sale ....................................................... 2,472 3,636
Deferred income taxes ...................................................... 7,467 7,467
--------- ---------
Total current assets .......................................... 506,917 383,326
--------- ---------
Land ......................................................................... 15,857 14,307
Buildings and improvements ................................................... 145,309 124,968
Furniture, fixtures and equipment ............................................ 99,984 89,633
Construction in progress ..................................................... 6,327 3,563
--------- ---------
267,477 232,471
Accumulated depreciation and amortization .................................... (94,913) (83,880)
--------- ---------
Property and equipment, net ................................................ 172,564 148,591
Other assets ................................................................. 4,234 4,292
--------- ---------
Total assets .................................................. $ 683,715 $ 536,209
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 237,732 $ 131,564
Accrued employee compensation .............................................. 7,903 12,716
Other accrued expenses ..................................................... 71,717 61,208
Income taxes currently payable ............................................. 5,542 --
Current portion of capital lease obligations ............................... 339 339
--------- ---------
Total current liabilities ..................................... 323,233 205,827
--------- ---------
Revolving credit loan ........................................................ -- 19,403
Capital lease obligations .................................................... 1,630 1,807
Deferred income taxes ........................................................ 8,879 8,879
Other long-term liabilities .................................................. 5,528 4,909
--------- ---------
Total liabilities ............................................. 339,270 240,825
--------- ---------
Stockholders' equity:
Preferred stock, 40,000 shares authorized; $1.00 par value; no shares issued -- --
Common stock, 100,000,000 shares authorized; $.008 par value; 38,244,518
and 37,390,469 shares issued and outstanding in 2004 and 2003, respectively 306 299
Additional paid-in capital ................................................... 75,940 62,083
Retained earnings ............................................................ 268,199 233,002
--------- ---------
Total stockholders' equity .................................... 344,445 295,384
--------- ---------
Total liabilities and stockholders' equity .................... $ 683,715 $ 536,209
========= =========
The accompanying notes are an integral part of this statement.
Page 3 of 20
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL FOR THE FISCAL
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- ----------------------
JUNE 26, JUNE 28, JUNE 26, JUNE 28,
2004 2003 2004 2003
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
Net sales .............................................................. $ 525,919 $ 449,391 $ 856,473 $ 723,151
Cost of merchandise sold ............................................... 365,376 313,099 596,761 506,062
--------- --------- --------- ---------
Gross margin ...................................................... 160,543 136,292 259,712 217,089
Selling, general and administrative expenses ........................... 104,606 87,356 191,497 159,494
Depreciation and amortization .......................................... 6,114 4,750 11,917 9,204
--------- --------- --------- ---------
Income from operations ............................................ 49,823 44,186 56,298 48,391
Interest expense, net .................................................. 190 941 571 1,951
--------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting principle .................................... 49,633 43,245 55,727 46,440
Income tax expense ..................................................... 18,257 15,858 20,530 17,040
--------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle ................................................. 31,376 27,387 35,197 29,400
Cumulative effect on prior years of retroactive
application of change in accounting principle,
net of income taxes of $1,165 ........................................ -- -- -- (1,888)
--------- --------- --------- ---------
Net income ............................................................ $ 31,376 $ 27,387 $ 35,197 $ 27,512
========= ========= ========= =========
Net income per share - basic, before cumulative
effect of change in accounting principle ............................. $ 0.82 $ 0.74 $ 0.93 $ 0.80
Cumulative effect of accounting change, net of
income taxes ......................................................... -- -- -- (0.06)
--------- --------- --------- ---------
Net income per share - basic ........................................... $ 0.82 $ 0.74 $ 0.93 $ 0.74
========= ========= ========= =========
Net income per share - assuming dilution before
cumulative effect of change in accounting
principle ............................................................ $ 0.75 $ 0.68 $ 0.84 $ 0.74
Cumulative effect of accounting change, net of
income taxes ......................................................... -- -- -- (0.05)
--------- --------- --------- ---------
Net income per share - assuming dilution ............................... $ 0.75 $ 0.68 $ 0.84 $ 0.69
========= ========= ========= =========
Pro-forma amounts assuming the change in accounting principle is applied
retroactively:
Net income ....................................................... $ 31,376 $ 27,387 $ 35,197 $ 29,400
Net income per share - basic ..................................... $ 0.82 $ 0.74 $ 0.93 $ 0.80
Net income per share - assuming dilution ......................... $ 0.75 $ 0.68 $ 0.84 $ 0.74
The accompanying notes are an integral part of this statement.
Page 4 of 20
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL
SIX MONTHS ENDED
-----------------------
JUNE 26, JUNE 28,
2004 2003
--------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income ................................................................... $ 35,197 $ 27,512
Tax benefit of stock options exercised ....................................... 8,014 3,324
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of a change in accounting principle .................. -- 1,888
Depreciation and amortization .......................................... 11,917 9,204
Gain on sale of property and equipment .................................. (965) (765)
Asset impairment related to closed stores ............................... 71 78
Deferred income taxes ................................................... -- 322
Change in assets and liabilities:
Inventories .......................................................... (82,532) (68,961)
Prepaid expenses and other current assets ............................ 4,218 (2,565)
Accounts payable ..................................................... 106,168 75,146
Accrued expenses ..................................................... 5,696 (10,537)
Income taxes currently payable ....................................... 5,542 3,233
Other ................................................................ 1,271 365
--------- ---------
Net cash provided by operating activities .................................... 94,597 38,244
--------- ---------
Cash flows from investing activities:
Capital expenditures ..................................................... (36,843) (16,396)
Proceeds from sale of property and equipment ............................. 2,417 2,429
--------- ---------
Net cash used in investing activities ........................................ (34,426) (13,967)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving credit agreement .............................. 122,367 229,669
Repayments under revolving credit agreement .............................. (141,770) (253,264)
Repayment of long-term debt .............................................. -- (1,072)
Principal payments under capital lease obligations ....................... (177) (170)
Net proceeds from issuance of common stock ............................... 5,850 4,619
--------- ---------
Net cash used in financing activities ........................................ (13,730) (20,218)
--------- ---------
Net increase in cash and cash equivalents .................................... 46,441 4,059
Cash and cash equivalents at beginning of period ............................. 19,980 13,773
--------- ---------
Cash and cash equivalents at end of period ................................... $ 66,421 $ 17,832
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................... $ 340 $ 1,683
Income taxes ............................................................... 543 10,482
The accompanying notes are an integral part of this statement
Page 5 of 20
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These statements should be read in
conjunction with the Company's annual report on Form 10-K for the fiscal year
ended December 27, 2003. The results of operations for the fiscal three-month
and six-month periods are not necessarily indicative of results for the full
fiscal year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States inherently
requires estimates and assumptions by management that affect the reported
amounts of assets and liabilities, revenues and expenses and related
disclosures. Actual results could differ from those estimates.
Significant estimates and assumptions by management primarily impact the
following key financial statement areas:
Inventory Valuation
-------------------
The Company identifies potentially excess and slow-moving
inventory by evaluating turn rates and overall inventory levels.
Excess quantities are identified through the application of
benchmark turn targets and historical sales experience. Further,
exposure to inadequate realization of carrying value is
identified through analysis of gross margin achievement and
markdown experience, in combination with all merchandising
initiatives. The estimated reserve is based on management's
current knowledge with respect to inventory levels, sales trends
and historical experience relating to the sale of the excess
and/or slow-moving inventory. Management does not believe the
Company's merchandise inventories are subject to significant risk
of obsolescence in the near-term, and management has the ability
to adjust purchasing practices based on anticipated sales trends
and general economic conditions. However, changes in consumer
purchasing patterns could result in the need for additional
reserves.
The Company estimates its expected shrinkage of inventory between
physical inventory counts by assessing the chain-wide average
shrinkage experience rate, applied to the related periods' sales
volumes. Such assessments are updated on a regular basis for the
most recent individual store experiences.
The Company receives funding from its vendors for promotion of
the Company's brand as well as the sale of their products. Vendor
funding is accounted for as a discount on the purchase price of
inventories and is recognized in cost of sales as inventory is
sold. The amount of expected funding is estimated based upon
initial guaranteed commitments, as well as anticipated purchase
levels with applicable vendors. The estimated purchase volume is
based on management's current knowledge with respect to inventory
levels, sales trends and expected customer demand, as well as
planned new store openings. Although management believes it has
the ability to reasonably estimate its purchase volume, it is
possible that actual results could significantly differ from the
estimated amounts.
Page 6 of 20
Sales Returns
-------------
The Company generally honors customer refunds within 30 days of
the original purchase, with the supporting receipt. The Company
estimates its reserve for likely customer returns based on the
average refund experience in relation to sales for the related
period. Due to the seasonality of the Company's sales, the refund
experience can vary, depending on the fiscal quarter of
measurement.
Self-insurance
--------------
The Company is self-insured for certain losses relating to
workers' compensation, medical and general liability claims.
However, the Company has stop-loss limits and umbrella insurance
coverage for certain risk exposures subject to specified limits.
Self-insurance claims filed and claims incurred but not reported
are accrued based upon management's estimates of the aggregate
liability for uninsured claims incurred using actuarial
assumptions followed in the insurance industry and historical
experience. Although management believes it has the ability to
adequately record estimated losses related to claims, it is
possible that actual results could significantly differ from
recorded self-insurance liabilities.
REVENUE RECOGNITION
The Company recognizes revenue when sales transactions occur and customers take
possession of the merchandise. A provision for anticipated merchandise returns
is provided in the period during which the related sales are recorded.
STORE PRE-OPENING COSTS
Non-capital expenditures incurred in connection with start-up activities are
expensed as incurred.
STORE CLOSING COSTS
The Company recognizes store closing costs in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with a maturity of three months
or less when purchased to be cash equivalents. The majority of payments due from
banks for customer credit card transactions process within 24 to 48 hours and
are accordingly classified as cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
short-term receivables and payables and long-term debt instruments, including
capital leases. The carrying values of cash and cash equivalents, receivables,
and trade payables equal current fair value. The terms of the Company's senior
revolving credit agreement includes a variable interest rate which approximates
the current market rate.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company complies with SFAS Nos. 133, 137, and 138 (collectively "SFAS 133")
pertaining to the accounting for derivatives and hedging activities. SFAS 133
requires the Company to recognize all derivative instruments in the balance
sheet at fair value. SFAS 133 impacted the accounting for the Company's interest
rate swap agreement, which was designated as a cash flow hedge. The interest
rate swap expired in November 2003.
INVENTORIES
The value of the Company's inventories was determined using the lower of
last-in, first-out (LIFO) cost or market. Inventories are not in excess of
market value. Quarterly inventory determinations under LIFO are based on
assumptions as to projected inventory levels at the end of the fiscal year,
sales for the year and the rate of inflation/deflation for the year. If the
first-in, first-out (FIFO) method of accounting for inventory had been used,
Page 7 of 20
inventories would have been approximately $2,339,000 higher than reported at
June 26, 2004. At December 27, 2003, LIFO and FIFO inventory values were the
same.
FREIGHT COSTS
The Company incurs various types of transportation and delivery costs in
connection with inventory purchases and distribution. Such costs are included as
a component of the overall cost of merchandise.
WAREHOUSING AND DISTRIBUTION COSTS
Costs incurred at the Company's distribution centers for receiving, warehousing
and preparing product for delivery are expensed as incurred. These costs are
included in selling, general and administrative expenses in the accompanying
statements of income.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets. Improvements
to leased premises are amortized using the straight-line method over the life of
the lease or the useful life of the improvement, whichever is shorter. The
following estimated useful lives are generally applied:
Life
-------------
Buildings 30 - 35 years
Leasehold improvements 5 - 15 years
Furniture, fixtures and equipment 5 - 10 years
Computer software and hardware 3 - 5 years
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of the asset may not be recoverable. Impairment is
recognized on assets classified as held and used when the sum of undiscounted
estimated future cash flows expected to result from the use of the asset is less
than the carrying value. Impairment on long-lived assets to be disposed of is
recognized by writing down the related assets to their fair value (less costs to
sell, as appropriate) when the criteria have been met for the asset to be
classified as held for sale or disposal. (Note 3)
ADVERTISING COSTS
Advertising costs consist of expenses incurred in connection with newspaper
circulars, television and radio, as well as direct mail, newspaper
advertisements and other promotions. Expenses incurred are charged to operations
at the time the related advertising first takes place.
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to be recovered or settled.
STOCK-BASED COMPENSATION PLANS
As permitted by SFAS 123, "Accounting for Stock-Based Compensation," the Company
has elected to account for its stock-based compensation plans under the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees."
Under APB No. 25, compensation expense would be recorded if the current market
price of the underlying stock on the date of grant exceeded the exercise price.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date (derived through use of Black-Scholes
methodology) for awards under the plans consistent with the method
Page 8 of 20
prescribed by SFAS 123, the Company's pro forma net income and net income per
share for the fiscal three and six months ended June 26, 2004 and June 28, 2003,
would have been as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ----------------------------
JUNE 26, JUNE 28, JUNE 26, JUNE 28,
2004 2003 2004 2003
---------- --------- ---------- ----------
Net income - as reported $ 31,376 $ 27,387 $ 35,197 $ 27,512
Pro forma compensation expense, net of income taxes
(1,134) (858) (2,114) (1,499)
---------- --------- ---------- ----------
Net income - pro forma $ 30,242 $ 26,529 $ 33,083 $ 26,013
========== ========= ========== ===========
Net income per share - basic:
As reported $ 0.82 $ 0.74 $ 0.93 $ 0.74
Pro forma $ 0.79 $ 0.72 $ 0.87 $ 0.71
Net income per share - diluted:
As reported $ 0.75 $ 0.68 $ 0.84 $ 0.69
Pro forma $ 0.72 $ 0.66 $ 0.79 $ 0.65
NET INCOME PER SHARE
The Company presents both basic and diluted earning per share ("EPS") on the
face of the statements of income. As provided by SFAS 128 "Earnings per Share",
basic EPS is calculated as income available to common stockholders divided by
the weighted average number of shares outstanding during the period. Diluted EPS
is calculated using the treasury stock method for options and warrants. All
earnings per share data included in the fiscal 2003 consolidated financial
statements and notes thereto have been restated to give effect to a two-for-one
stock split. (Note 7)
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE:
Beginning in 2003, the Company adopted the provisions of Emerging Issues Task
Force Issue No. 02-16 ("EITF 02-16"). EITF 02-16 provides guidance for the
accounting and income statement classification for consideration given by a
vendor to a retailer in connection with the sale of the vendor's products or for
the promotion of sales of the vendor's products. The EITF concluded that such
consideration received from vendors should be reflected as a decrease in prices
paid for inventory and recognized in cost of sales as the related inventory is
sold, unless specific criteria are met qualifying the consideration for
treatment as reimbursement of specific, identifiable incremental costs. Prior to
adopting this pronouncement, the Company classified all vendor-provided
marketing support funds as a reduction in selling, general and administrative
expenses.
The effect of applying the consensus of EITF 02-16 on prior-period financial
statements resulted in a change to previously reported net income; thus, the
Company has reported the adoption of EITF 02-16 as a cumulative effect
adjustment in accordance with Accounting Principles Board Opinion ("APB") No.
20, "Accounting Changes" and Financial Accounting Standards Board ("FASB")
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements"
and as permitted by EITF 02-16. In the first quarter of 2003, the Company
recognized a net income reduction of $3.1 million ($1.9 million net of income
taxes) that resulted from the cumulative effect on prior years.
NOTE 3 - ASSETS HELD FOR SALE:
Assets held for sale consists of certain buildings and related store properties
that the Company intends to sell. The Company applies the provisions of SFAS
144, "Accounting for the Impairment or Disposal of Long Lived Assets," to assets
held for sale. SFAS 144 requires assets held for sale to be valued on an
asset-by-asset basis at the lower of carrying amount or fair value less costs to
sell. In applying these provisions, recent appraisals, valuations, offers and
bids are considered. The Company recorded an impairment charge of $0.7 million
and $0.8 million in the first quarter of fiscal 2004 and 2003, respectively, to
adjust the carrying value of certain property to fair value, less costs to sell.
This charge is included in selling, general, and administrative expenses. No
impairment charges were required during the second quarter of fiscal 2004 or
2003.
Page 9 of 20
The buildings and properties held for sale are separately presented as assets
held for sale in the accompanying consolidated balance sheets. The assets are
classified as current, as the Company believes they will be sold within the next
twelve months and have met all the criteria for classification as held for sale
pursuant to SFAS 144.
NOTE 4 - CREDIT AGREEMENT:
In August 2002, the Company entered into a replacement unsecured senior
revolving credit agreement (the "Credit Agreement") with Bank of America, N.A.,
as agent for a lender group, expanding the maximum available borrowings from
$125 million to $155 million and extending the maturity to February 2006. The
Credit Agreement bears interest at either the bank's prime rate (4.0% at June
26, 2004) or the London Inter-Bank Offer Rate (1.33% at June 26, 2004) plus an
additional amount ranging from 0.75% to 1.5% per annum, adjusted quarterly based
on the Company's performance (0.75% at June 26, 2004).
On January 28, 2004, the Credit Agreement was amended to extend the maturity
date to February 28, 2007. Additionally, the amendment included changes to
certain financial covenants, primarily to provide flexibility for capital
expenditures.
NOTE 5 - DERIVATIVE FINANCIAL INSTRUMENTS:
During fiscal 2000, the Company entered into an interest rate swap agreement as
a means of managing its interest rate exposure. This agreement, which matured in
November 2003, had the effect of converting certain of the Company's variable
rate obligations to fixed rate obligations.
The Company complies with SFAS 133 and recognized the fair value of the interest
rate swap in its consolidated balance sheet. The Company regularly adjusted the
carrying value of the interest rate swap to reflect its current fair value. The
related gain or loss on the swap was deferred in stockholders' equity (as a
component of comprehensive income) to the extent that the swap was an effective
hedge. The deferred gain or loss was recognized in income in the period in which
the related interest rate payments being hedged were recognized as an expense.
However, to the extent that the change in value of an interest rate swap
contract did not perfectly offset the change in the interest rate payments being
hedged, the ineffective portion was immediately recognized as an expense. Net
amounts paid or received were reflected as adjustments to interest expense.
Page 10 of 20
NOTE 6 - COMPREHENSIVE INCOME:
Comprehensive income includes the change in the fair value of the Company's
interest rate swap agreement (which expired in November 2003), which qualified
for hedge accounting. Comprehensive income for each period is as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 26, JUNE 28, JUNE 26, JUNE 28,
2004 2003 2004 2003
---------- --------- ---------- ----------
Net income-- as reported $31,376 $27,387 $35,197 $27,512
Change in fair value of effective portion of
interest rate swap agreement, net
of income taxes -- 204 -- 564
------- ------- ------- -------
Comprehensive income $31,376 $27,591 $35,197 $28,076
======= ======= ======= =======
NOTE 7 - NET INCOME PER SHARE:
Basic net income per share is based on the weighted average outstanding common
shares. Diluted net income per share is based on the weighted average
outstanding common shares and reflects basic net income per share reduced by the
dilutive effect of stock options.
Net income per share is calculated as follows (in thousands, except per share
amounts):
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 26, 2004 JUNE 28, 2003
-------------------------------- ---------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ -------- ------- ------ --------
BASIC NET INCOME PER SHARE:
Net income $31,376 38,213 $ 0.82 $27,387 37,078 $ 0.74
DILUTED NET INCOME PER SHARE:
Net income $31,376 41,845 $ 0.75 $27,387 40,111 $ 0.68
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 26, 2004 JUNE 28, 2003
-------------------------------- ---------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ -------- ------- ------ --------
BASIC NET INCOME PER SHARE:
Net income, before cumulative
effect of accounting change $ 35,197 38,021 $ 0.93 $ 29,400 36,848 $ 0.80
Cumulative effect of
accounting change -- 38,021 -- (1,888) 36,848 (0.06)
-------- ------ -------- -------- ------ --------
Net income $ 35,197 38,021 $ 0.93 $ 27,512 36,848 $ 0.74
======== ====== ======== ======== ====== ========
DILUTED NET INCOME PER SHARE:
Net income, before cumulative effect of
accounting change $ 35,197 41,828 $ 0.84 $ 29,400 39,915 $ 0.74
Cumulative effect of accounting change
-- 41,828 -- (1,888) 39,915 (0.05)
-------- ------ -------- -------- ------ --------
Net income $ 35,197 41,828 $ 0.84 $ 27,512 39,915 $ 0.69
======== ====== ======== ======== ====== ========
Page 11 of 20
Weighted average shares outstanding are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- -----------------------
JUNE 26, JUNE 28, JUNE 28, JUNE 28,
2004 2003 2004 2003
------ ------ ------ ------
Shares outstanding 38,213 37,078 38,021 36,848
Dilutive stock options outstanding 3,632 3,033 3,807 3,067
------ ------ ------ ------
Diluted shares outstanding 41,845 40,111 41,828 39,915
====== ====== ====== ======
On July 17, 2003, the Company's Board of Directors approved a two-for-one split
of the Company's common stock. As a result, stockholders received one additional
share on August 21, 2003 for each share held as of the record date of August 4,
2003. The par value of the Company's common stock remains $0.008. All share and
per share data included in the fiscal 2003 consolidated financial statements and
notes thereto have been restated to give effect to the stock split.
NOTE 8 - CONTINGENCIES:
LITIGATION
The Company is involved in various litigations arising in the ordinary course of
business. After consultation with legal counsel, management expects these
matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations. Any estimated loss has
been adequately provided in accrued liabilities to the extent probable and
reasonably estimable. It is possible, however, that future results of operations
for any particular quarterly or annual period could be materially affected by
changes in circumstances relating to these proceedings.
Subsequent to the end of the quarter, a purported shareholder derivative suit
was filed against each of the Company's directors and certain of its officers.
The Company was named as a nominal defendant. (See Note 10 - Subsequent Events
and Part II - Item 1. Legal Proceedings)
NOTE 9 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities ("VIE"), an
Interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). The
Interpretation provides guidance for determining whether an entity is a variable
interest entity and evaluation for consolidation based on a company's variable
interests. The Interpretation was effective (1) immediately for VIEs created
after January 31, 2003 and (2) in the first interim period ending after March
15, 2004 for VIEs created prior to February 1, 2003. The adoption of FIN 46 had
no impact on the Company's financial position or results of operations.
NOTE 10 - SUBSEQUENT EVENTS:
In July 2004, the Company relocated its existing headquarters to consolidate
multiple headquarter facilities within one facility. The Company expects to
incur incremental after-tax costs of approximately $2.0 million primarily
related to the remaining lease obligations of the current facilities.
A purported shareholder derivative lawsuit has been filed in the Chancery Court
for Davidson County, Tennessee by the Hawaii Laborers Pension Plan against each
of the Company's directors, certain of its officers and one former director. The
Company is named as a nominal defendant in the complaint, which alleges breaches
of fiduciary duty, acts of bad faith, abuse of control, mismanagement, waste of
corporate assets, unjust enrichment and other violations of Tennessee law
relating to the preparation of the Company's financial statements. The complaint
seeks, on behalf of the Company, unspecified damages, restitution, the
plaintiff's costs and disbursements and such other relief as the Court deems
proper. The Audit Committee of the Board of Directors, with the assistance of
independent legal counsel, is conducting an investigation of the claims set
forth in the complaint. The Company has moved to dismiss the case for failure to
make a pre-suit demand on the Board of Directors.
Page 12 of 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis describe certain factors affecting Tractor
Supply Company (the "Company"), its results of operations for the fiscal
three-month and six-month periods ended June 26, 2004 and June 28, 2003 and
significant developments affecting its financial condition since the end of the
fiscal year, December 27, 2003, and should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended December 27,
2003. The following discussion and analysis also contains certain historical and
forward-looking information. The forward-looking statements included herein are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (the "Act"). All statements, other than statements of
historical facts, which address activities, events or developments that the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including their amount and nature),
business strategy, expansion and growth of the Company's business operations and
other such matters are forward-looking statements. To take advantage of the safe
harbor provided by the Act, the Company is identifying certain factors that
could cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of the
Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include general economic
cycles affecting consumer spending, weather factors, operating factors affecting
customer satisfaction, consumer debt levels, pricing and other competitive
factors, the ability to attract, train and retain highly qualified employees,
the ability to identify suitable locations and negotiate favorable lease
agreements on new and relocated stores, the timing and acceptance of new
products in the stores, the mix of goods sold, the continued availability of
favorable credit sources, capital market conditions in general, and the
seasonality of the Company's business. Consequently, the forward-looking
statements made herein are qualified by these cautionary statements, and there
can be no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will have
the expected consequences to or effects on the Company or its business and
operations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
THE FISCAL THREE MONTHS (SECOND QUARTER) AND SIX MONTHS ENDED JUNE 26, 2004 AND
JUNE 28, 2003
Net sales increased 17.0% to $525.9 million for the second quarter of 2004 from
$449.4 million for the second quarter of 2003. Net sales rose 18.4% to $856.5
for the first six months of fiscal 2004 from $723.2 million for the first six
months of fiscal 2003. The net sales increase resulted primarily from same-store
sales increases of 10.0% for the second quarter of fiscal 2004 and 10.9% for the
first six months of fiscal 2004. The Company experienced strong same-store sales
increases in all regions and across all product lines with equine, animal and
pet products representing the strongest category. Same-store sales increases
include a benefit of 2.1% for the second fiscal quarter of 2004 and 1.6% for the
first six months of fiscal 2004 due to increased prices to cover rising steel
and other commodity costs.
Page 13 of 20
The following charts indicate the average percentages of sales represented by
each of the Company's major product categories during the first six months and
second quarter of fiscal 2004 and 2003:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- -----------------------
JUNE 26, JUNE 28, JUNE 28, JUNE 28,
PRODUCT CATEGORY 2004 2003 2004 2003
Equine, Pet and Animal 29% 28% 32% 31%
Seasonal Products 28 27 24 24
Hardware and Tools 15 16 16 17
Truck/Trailer/Tow/Lube 12 13 12 13
Agriculture Products 12 12 10 9
Clothing and Footwear 4 4 6 6
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
The Company opened a total of 12 new stores in the second quarter of fiscal 2004
and 25 new stores during the first six months of fiscal 2004. This compares to
13 new store openings in the second quarter of fiscal 2003 and 25 new stores in
the first six months of 2003. The Company also relocated five stores in the
second quarter of 2004 and eight stores in the first six months of 2004,
compared to three store relocations in the second quarter of 2003 and five store
relocations in the first six months of 2003. The Company operated 487 stores in
31 states at June 26, 2004 compared to 458 stores in 30 states at June 28, 2003.
The gross margin rate for the second quarter and first six months of fiscal 2004
was 30.5% and 30.3%, respectively. This represents an increase of 20 and 30
basis points, respectively, over the comparable prior year periods. The margin
improvement is a result of increased year-over-year selling prices, lower
merchandise costs in some categories and favorable sales mix changes partially
offset by an increase in freight costs and a $1.6 million LIFO inventory charge.
Increased costs of steel products and grain-based feeds were passed through in
increased selling prices.
As a percent of net sales, selling, general and administrative ("SG&A") expenses
were 19.9% and 22.3% of net sales for the second quarter and first six months of
2004, respectively. The increase over comparable prior year periods (50 basis
points and 30 basis points, respectively) is primarily a result of increased
spending on long-term growth initiatives including distribution capacity, supply
chain technology and people development.
Depreciation and amortization expense in the second quarter and first six months
of 2004 increased 28.7% and 29.5% over the second quarter and the first six
months of 2003, respectively. These increases are due primarily to costs
associated with new and relocated stores, the purchase of the Pendleton, Indiana
distribution center and increased technology investments.
Net interest expense in the second quarter and first six months of 2004
decreased 79.8% and 70.7% over the second quarter and the first six months of
fiscal 2003, respectively. These decreases reflect stronger cash flow, which
permitted reduced short-term borrowings under the Credit Agreement to fund new
store expansion. In addition, the expiration of fixed rate agreements under the
Credit Agreement and term note resulted in less interest cost being incurred.
For the second quarter and first six months of 2004, the Company's effective tax
rate increased to 36.8% from 36.7% for the prior year periods, primarily due to
changes in the Company's effective state tax rate resulting from the geographic
concentration of business.
As a result of the foregoing factors, net income for the second quarter of 2004
was $31.4 million, or $0.75 per diluted share, compared with $27.4 million, or
$0.68 per diluted share for the prior year quarter. Net income for the first six
months of 2004 was $35.2 million, or $0.84 per diluted share, compared to net
income of $27.5 million, or $0.69 per diluted share for the prior year period.
The results for the second quarter and first six months of 2003 included an
after-tax charge of $1.9 million, or $0.05 per diluted share, related to the
adoption of new accounting guidance for allowances that requires retailers to
recognize, as a reduction of product cost, any consideration given by a vendor
to a retailer in connection with the purchase of the vendor's products or the
promotion of sales of the vendor's products by the retailer. See Note 2 of Notes
to Unaudited Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are for expansion, remodeling and relocation programs, including
inventory purchases and capital expenditures. The Company's
Page 14 of 20
primary ongoing sources of liquidity are funds provided from operations,
commitments available under its revolving Credit Agreement and normal trade
credit. The Company's inventory and accounts payable levels typically build in
the first and third fiscal quarters in anticipation of the spring and winter
selling seasons, respectively.
At June 26, 2004, the Company had working capital of $183.7 million, a $6.2
million increase from December 27, 2003. This increase is primarily attributable
to the changes in the following components of current assets and current
liabilities (in millions):
JUNE 26, DEC. 27,
2004 2003 VARIANCE
-------- -------- --------
Current assets:
Cash and cash equivalents $ 66.4 $ 20.0 $ 46.4
Inventories 407.1 324.5 82.6
Prepaid expenses and other current assets 23.5 27.7 (4.2)
Other, net 9.9 11.1 (1.2)
-------- -------- --------
506.9 383.3 123.6
-------- -------- --------
Current liabilities:
Accounts payable 237.7 131.6 106.1
Accrued expenses 85.2 73.9 11.3
Other, net 0.3 0.3 --
-------- -------- --------
323.2 205.8 117.4
-------- -------- --------
Working capital $ 183.7 $ 177.5 $ 6.2
======== ======== ========
The increases in cash and cash equivalents and prepaid expenses are generally
due to the increase in the number of stores in operation and resulting increases
in sales, growth in operations, and timing of payments. Additionally, the
Company has experienced favorable same-store sales increases which have
generated cash in excess of current operating and capital expenditure needs.
The increase in inventories and related increase in trade credit resulted
primarily from the addition of new stores and increased sales expectations.
Payment terms vary from 30 to 180 days depending on the inventory product. The
variance in payment terms, coupled with continued improvements in inventory
turns, resulted in accounts payable increases exceeding the corresponding
increases in inventory.
The increase in accrued expenses is primarily due to timing of payments offset
by a $5.2 million decrease in incentive compensation accruals, (resulting from
payment of certain 2003 annual incentives during the first quarter of 2004) and
general timing of other payments.
Operations provided net cash of $94.6 million and $38.2 million in the first six
months of 2004 and 2003, respectively. This $56.4 million increase in net cash
provided in 2004 over 2003 is primarily due to changes in the following
operating activities (in millions):
JUNE 26, JUNE 28,
2004 2003 VARIANCE
------- -------- --------
Net income $ 35.2 $ 27.5 $ 7.7
Tax benefit of stock options exercised 8.0 3.3 4.7
Cumulative effect of a change in accounting principle -- 1.9 (1.9)
Depreciation and amortization 11.9 9.2 2.7
Income taxes currently payable 5.5 (4.8) 10.3
Inventories and accounts payable 23.6 6.2 17.4
Accrued expenses 5.7 (10.5) 16.2
Other, net 4.7 5.4 (0.7)
------- ------- -------
Net cash provided by operations $ 94.6 $ 38.2 $ 56.4
======= ======= =======
The increase in net cash provided by operations in the first six months of 2004
compared with 2003 is primarily due to strong sales performance and the timing
of payments, particularly estimated income taxes. The increase in depreciation
and amortization is primarily due to costs associated with new and relocated
stores, the purchase of the Pendleton, Indiana and Waco, Texas distribution
centers and increased technology investments. The increase in net cash provided
for inventories and accounts payable is due to the increase in inventory levels
and vendor payment terms discussed above. The decrease in cash used for accrued
expenses is due to the timing of payments as described above.
Page 15 of 20
Investing activities used $34.4 million and $14.0 million in the first six
months of 2004 and 2003, respectively. The majority of this cash requirement
relates to the Company's capital expenditures as described above.
Financing activities used $13.7 million and $20.2 million in the first six
months of 2004 and 2003, respectively, largely due to borrowing requirements
resulting from cash flow from operations, partially reduced by proceeds received
from the exercise of stock options.
The Company plans to spend approximately $60 million to purchase fixed assets
during the balance of 2004. Significant future purchases include the expansion
of the Pendleton, Indiana distribution center, the purchase of a new
distribution center in Hagerstown, Maryland, continued growth through new and
relocated stores and additional technology enhancements.
The Company believes that its cash flow from operations, borrowings available
under the Credit Agreement, and normal trade credit will be sufficient to fund
the Company's operations and its capital expenditure needs, including store
openings and renovations, over the next few years.
OFF-BALANCE SHEET ARRANGEMENTS
The extent of the Company's off-balance sheet arrangements are operating leases
and outstanding letters of credit. Leasing buildings and equipment for retail
stores and offices rather than acquiring these significant assets allows the
Company to utilize financial capital to operate the business rather than
maintain assets. Letters of credit allow the Company to purchase inventory in a
timely manner.
The Company had outstanding letters of credit of $25.8 million at June 26, 2004.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of the Company's financial position and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make informed estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. The Company's
significant accounting policies, including areas of critical management
judgments and estimates, have primary impact on the following financial
statement areas:
- Inventory valuation
- Sales returns
- Self insurance
The Company's critical accounting policies are subject to judgments and
uncertainties, which affect the application of such policies. (See Note 1 to the
Notes to the Unaudited Consolidated Financial Statements for a discussion of the
Company's critical accounting policies.) The Company's financial position and/or
results of operations may be materially different when reported under different
conditions or when using different assumptions in the application of such
policies. In the event estimates or assumptions prove to be different from
actual amounts, adjustments are made in subsequent periods to reflect more
current information.
SUBSEQUENT EVENTS
In July 2004, the Company relocated its existing headquarters to consolidate
multiple headquarter facilities within one facility. The Company expects to
incur incremental after-tax costs of approximately $2.0 million primarily
related to the remaining lease obligations of the current facilities.
A purported shareholder derivative lawsuit has been filed in the Chancery Court
for Davidson County, Tennessee by the Hawaii Laborers Pension Plan against each
of the Company's directors, certain of its officers and one former director. The
Company is named as a nominal defendant in the complaint, which alleges breaches
of fiduciary duty, acts of bad faith, abuse of control, mismanagement, waste of
corporate assets, unjust enrichment and other violations of Tennessee law
relating to the preparation of the Company's financial statements. The complaint
seeks, on behalf of the Company, unspecified damages, restitution, the
plaintiff's costs and disbursements and such other relief as the Court deems
proper. The Audit Committee of the Board of Directors, with the assistance of
Page 16 of 20
independent legal counsel, is conducting an investigation of the claims set
forth in the complaint. The Company has moved to dismiss the case for failure to
make a pre-suit demand on the Board of Directors.
CHANGE IN ACCOUNTING PRINCIPLE
Emerging Issue Task Force Issue 02-16 ("EITF 02-16"), "Accounting by a Customer
(including a Reseller) for Certain Consideration Received from a Vendor"
provides guidance for the accounting treatment and income statement
classification for consideration given by a vendor to a retailer in connection
with the sale of the vendor's products or for the promotion of sales of the
vendor's products. The EITF concluded that such consideration received from
vendors should be reflected as a decrease in prices paid for inventory and
recognized in cost of sales as the related inventory is sold, unless specific
criteria are met qualifying the consideration for treatment as reimbursement of
specific, identifiable incremental costs. Prior to adopting this pronouncement,
the Company classified all vendor-provided marketing support funds as a
reduction in selling, general and administrative expenses.
The effect of applying EITF 02-16 on prior-period financial statements results
in a change to previously reported net income; thus, the Company has reported
the adoption of EITF 02-16 as a cumulative effect adjustment in accordance with
APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements," and as permitted by EITF
02-16. Accordingly, in the first quarter of fiscal 2003, the Company recorded a
cumulative effect of accounting change of $3.1 million ($1.9 million net of
income taxes) for the impact of this adoption on prior fiscal years.
Page 17 of 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company entered into an interest rate swap agreement as a means of managing
its interest rate exposure. This agreement, which matured in November 2003, had
the effect of converting certain of the Company's variable rate obligations to
fixed rate obligations. Net amounts paid or received are reflected as an
adjustment to interest expense.
The Company complies with SFAS Nos. 133, 137, and 138 (collectively "SFAS 133")
pertaining to the accounting for derivatives and hedging activities. SFAS 133
requires the Company to recognize all derivative instruments in the balance
sheet at fair value. SFAS 133 impacted the accounting for the Company's interest
rate swap agreement, which was designated as a cash flow hedge.
The Company is exposed to changes in interest rates primarily from its Credit
Agreement. The Credit Agreement bears interest at either the bank's base rate
(4.0% at June 26, 2004 and June 28, 2003) or LIBOR (1.33% and 1.12% at June 26,
2004 and June 28, 2003, respectively) plus an additional amount ranging from
0.75% to 1.50% per annum, adjusted quarterly, based on Company performance
(0.75% at June 26, 2004 and June 28, 2003). The Company is also required to pay,
quarterly in arrears, a commitment fee ranging from 0.20% to 0.35% based on the
daily average unused portion of the Credit Agreement. (See Note 4 of Notes to
the Unaudited Consolidated Financial Statements for further discussion regarding
the Credit Agreement.)
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe its sales or results of operations have
been materially affected by inflation. The Company is subject to market risk
with respect to the pricing of certain products, which include, among other
materials, steel, corn, soybean and other commodities. If prices of these
materials continue to increase dramatically, consumer demand may fall and /or
the Company may not be able to pass such increases on to its customers and, as a
result, sales and/or gross margins could decline. The Company has been
successful, in many cases, in reducing or mitigating the effects of inflation
principally by taking advantage of vendor incentive programs, economies of scale
from increased volume of purchases and selective buying from the most
competitive vendors without sacrificing quality. Same-store sales increases
include a benefit of 2.1% for the second fiscal quarter of 2004 and 1.6% for the
first six months of fiscal 2004 due to increased prices to cover rising steel
and other commodity costs.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
At June 26, 2004, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of the Company's disclosure controls and procedures. Based on this evaluation,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures (as defined in Rules
13a-15(a) and 15d-15(e) under the Securities Exchange Act of 1934) are effective
for gathering, analyzing and disclosing the information the Company is required
to disclose in the reports it files under the Securities Exchange Act of 1934,
as of June 26, 2004, and that such information is accumulated and communicated
to the Company's management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
CHANGES IN INTERNAL CONTROLS
There were no changes in the Company's internal control over financial reporting
during the second quarter of 2004 that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
Page 18 of 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A purported shareholder derivative lawsuit has been filed in the Chancery Court
for Davidson County, Tennessee by the Hawaii Laborers Pension Plan against each
of the Company's directors and certain of its officers. The Company is names as
a nominal defendant in the complaint, which alleges breaches of fiduciary duty,
acts of bad faith, abuse of control, mismanagement, waste of corporate assets,
unjust enrichment and other violations of Tennessee law relating to preparation
of the Company's financial statements. The complaint seeks unspecified damages,
restitution, the plaintiff's costs and disbursements and such other relief as
the court deems proper. The Audit Committee of the Board of Directors, with the
assistance of independent legal counsel, is conducting an investigation of the
claims set forth in the complaint. The Company has moved to dismiss the case for
failure to make a pre-suit demand on the Board of Directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on April 15, 2004
at the Company's corporate headquarters in Nashville, Tennessee.
(b) The stockholders elected, for a three-year term, three Class I
directors nominated for election as set forth in the proxy statement
dated March 8, 2004. The following table sets forth certain information
concerning each director of the Company whose term of office as a
director continued after the meeting:
Current Term as
Name Director Expires
---- ----------------
Joseph D. Maxwell 2005
Joseph M. Rodgers 2005
Sam K. Reed 2005
Joseph H. Scarlett, Jr. 2006
S. P. Braud 2006
Cynthia T. Jamison 2006
(c) (1) The stockholders elected three Class I directors for a
three-year term ending at the 2007 Annual Meeting of
Stockholders.
Name For Withheld
---- --- --------
James F. Wright 33,419,488 1,486,218
Gerard E. Jones 22,507,834 12,397,872
Edna K. Morris 33,942,384 963,322
(2) The stockholders ratified the reappointment of Ernst & Young
LLP as independent auditors of the Company for the fiscal year
ending December 25, 2004.
FOR AGAINST ABSTAIN
--- ------- -------
23,435,961 11,369,870 99,875
(3) The stockholders approved the 2004 Cash Incentive Plan:
FOR AGAINST ABSTAIN
--- ------- -------
32,801,382 ,057,614 46,710
Page 19 of 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.5 Amendment No. 1 to Amended and Restated By-laws
10.1 Tractor Supply Company 2004 Cash Incentive Plan, effective
April 15, 2004.
10.2 Employment Agreement between Tractor Supply Company and James F.
Wright, effective July 12, 2004.
31.1 Certification of Chief Executive Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated April 13, 2004 issuing a
press release announcing its financial results for the first quarter
ended March 27, 2004. Notwithstanding the foregoing, information
furnished under Items 9 and 12 of our Current Reports on Form 8-K,
including the related exhibits, is not to be incorporated by reference
into any filing of the Company with the Securities and Exchange
Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRACTOR SUPPLY COMPANY
Date:AUGUST 4, 2004 By: /S/ CALVIN B. MASSMANN
------------------------------
Calvin B. Massmann
Senior Vice President -
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Page 20 of 20